Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Bed, Bath -- and Beyond Comprehension

Can the bullishness in the home décor sector continue?

Some things in life just don't make sense. For instance, why do 15 miles of road need to be closed when construction only happens in a 300-foot-long space? Once in a while, these "what the heck?" moments can take shape in the stock market as well.

Take the home furnishings sector, for example. The housing sector is a wreck. The last time I checked, housing prices were trickling a nose above multiyear lows while foreclosure levels remained high. Despite a 60-year low in mortgage rates, home purchasing seems relatively unfazed. So you can imagine my utter shock when one home decor company after another has reported considerably better-than-anticipated figures over the past few weeks, culminating in Bed Bath & Beyond's (Nasdaq: BBBY) incomprehensibly bullish report last night. Scratching your head yet? Yeah, so am I!

For the quarter, Bed Bath & Beyond blew Wall Street's projections out of the kitchen with a profit of $0.93 on revenue of $2.31 billion. Perhaps even more impressive was that same-store sales increased by 5.6% over the year-ago period because of an increase in transactions and the average dollar amount per transaction. Clearly, according to the company, consumers are spending more, and surprisingly the company is spending less even with its aggressive expansion strategy. All of this translates into a 20-basis-point jump in gross margin over the year-ago period.

While not on the same level as Bed Bath & Beyond, other names in the home decor sector also cruised to solid results this quarter. Last week, perpetual home decor underperformerPier 1 Imports(NYSE: PIR) met estimates on the heels of a 10.8% jump in same-store sales. Williams-Sonoma(NYSE: WSM) last month topped projections and raised full-year revenue guidance because of a rebound in luxury spending.

Still confused? Yeah, me, too! I'm inclined to believe that luxury spending is back on the rise, as is evidenced by retail strength in Nordstrom(NYSE: JWN), Saks (NYSE SKS), and Tiffany(NYSE: TIF) -- but that still doesn't explain why low- to mid-price-point home decor stores are suddenly all the rage with luxury buyers.

A possibility that no home furnishing company has mentioned so far could be that consumers are opting for remodels rather than new homes. That would explain the both the lack of new home purchases and the sudden re-emergence of home furnishing stores' relevance. If this were true, it would mean the luxury consumer is not in as great of financial shape as everyone believes.

Either way, this growth spurt in home decor doesn't have me convinced. Until I see definitive growth in the housing sector, I can't advocate jumping in even with these strong results.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. Motley Fool newsletter services have recommended buying shares of Bed Bath & Beyond. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that won't gift you a towel for Christmas.

Author

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and investment planning. You'll often find him writing about Obamacare, marijuana, drug and device development, Social Security, taxes, retirement issues and general macroeconomic topics of interest. Follow @TMFUltraLong